The Abbasi Administration's decision on 16 October to generate Rs 25 to Rs 30 billion from imposing a regulatory duty on non-essential items to fund the export incentive package has yet to be fully implemented. The government not only decided to impose RD on 137 items but on 3 January decided to reduce RD on some items as a consequence of pressure from industrial groups.
On October 16, 2017 Federal Board of Revenue (FBR) issued SRO 1035(I)/2017 subsequent to approval of Economic Coordination Committee (ECC) of the cabinet under the chairmanship of Prime Minister Shahid Khaqan Abbasi to impose RD on 137 new items including new cars (less than 1800 cc), plastic articles, dry fruits, sun glasses, cigarette paper, tobacco, wall paper. Additionally RD rates on 219 items were raised including betel nuts (Supari), betel leaves (Paan), cosmetics, fruit juices, tiles, footwear, tyres, handbags, tableware, kitchenware, and home appliances like air conditioners, refrigerators.
However on January 3, 2018, FBR reduced RD on dozens of imported items for example 5 percent RD on the import of sacks and bags of polymers of ethylene by registered units for in-house use for packaging food and dairy products. The Commerce Ministry subsequently blocked this move arguing that Commerce Ministry was not taken on board prior to placing the matter before the ECC. The 16 October decision was opposed by the Chairman of National Assembly Standing Committee on Finance, Qaisar Ahmed Sheikh of the ruling party as well as Chairman of the Senate Standing Committee on Finance Saleem Mandviwalla.
Qaiser Ahmed Sheikh criticized the Commerce Minister for not taking industry on board prior to the imposition/increase in RD. Local industry approached Senator Saleem Mandviwalla who invited them to provide details of the impact of RD to the committee members, commerce ministry and FBR officials. The local industry representatives duly attended the meeting and informed the participants that the recently imposed RD on raw material imports was negatively impacting on their industry. Textile sector requested the committee to provide assistance to withdraw RD on inputs of textile value chain in used by the industry. All Pakistan Textile Mills Association (PTMA) pointed out that RD on textile inputs was having an adverse impact on industry by increasing their costs of production.
The Auto Parts Association pointed out that it operates under SRO 655 which defines tariff and duties for industry. The association members import raw material for the manufacture of air conditioners for cars and the imposition of RD negatively impacted on the cost of five raw material items and as a result the cost of locally manufactured air conditioners became comparable to imported ones. Tyre Association in its presentation stated that the price of tyres of small vehicles surged by Rs 500 per tyre and for big vehicles between Rs 4500 per tyre to Rs 5000. According to the tyre industry only 20 percent demand of tyres is met by domestic production while the remaining 80 percent is met through imports. The increase in price of domestic tyres due to the RD will further encourage smuggling of tyres in the country, they maintained.
A customs official dealing with anti smuggling activities stated that there are three kinds of importers: genuine importers who will not be affected by RD because they would pass on its impact to the end consumers, importers-cum-smugglers who use both legal and illegal channel of imports and smugglers who would take advantage of higher costs of production in the local market by illegally smuggling more items into the country.